It is the 1st of July and you are asked to prepare the future value calculation
ID: 2526715 • Letter: I
Question
It is the 1st of July and you are asked to prepare the future value calculation table for your client XYZ based on the information supplied on the project:
Expected annual cash flow $15,000.
Project life 10 years.
Year
Present value of $1 at 9%
1
0.9174
2
0.8417
3
0.7722
4
0.7084
5
0.6499
6
0.5963
7
0.5470
8
0.5019
9
0.4604
10
0.4224
Amount expected to be recovered from the project in the final year $7,000.
Cost of project $100,000.
Year
Present value of $1 at 9%
1
0.9174
2
0.8417
3
0.7722
4
0.7084
5
0.6499
6
0.5963
7
0.5470
8
0.5019
9
0.4604
10
0.4224
Explanation / Answer
Initial Year:
Cost Outflow: $100,000
Cash Inflow:
1st Year: $15,000 * 0.9174 = $13,761
2nd Year: $15,000 * 0.8417 = $12,625.5
3rd Year: $15,000 * 0.7722 = $11,583
4th Year: $15,000 * 0.7084 = $10,626
5th Year: $15,000 * 0.6499 = $9,748.5
6th Year: $15,000 * 0.5963 = $8,944.5
7th Year: $15,000 * 0.5470 = $8,205
8th Year: $15,000 * 0.5019 = $7,528.5
9th Year: $15,000 * 0.4604 = $6,906
10th Year: ($15,000+$7,000) * 0.4224 = $9,292.8
Total Inflows: 99,220.8
Net Present Value: $100,000-$99,220.8 = -$779.2
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